Lecture 05_Inventory Management Flashcards
ABC Analysis
in context of MRP
- Categorization of items with high, middle, low consumption value (importance)
XYZ Analysis
Categorization of items with regard to regularity of demand (regular, irregular, erratic)
X: regular level demand with random fluctuations
Y: irregular demand
Z: erratic demand
Combining ABC and XYZ
MRP planning
- 3 x 3 matrix
- Goal: Segmentation by ABC and XYZ to determine which products to focus on (e.g., AX items)
KPIs for Inventory
2 overarching items
1. Total costs
* Costs per order
* Inventory holding costs
− Costs of capital commitment
− Inventory costs inducing payments
* Shortage penalty costs
2. Service level (in percent)
* Non-stockout probability: Number of periods without shortages/Number of total
periods (α))
* Fill-rate: Fraction of demand immediately satisfied from stock (β )
2 Concept of Inventory Management
- Stochastic Inventory Control: Replenishment policies
- MRP-Concept
Net Inventory
vs.
Inventory position
Calculate Inventory Position
- physical inventory of 5, no backlog, outstanding orders of 10
Net inventory = physical inventory - backlog [orders that have yet to be shipped]
Inventory position = Net inventory + outstanding orders
Inventory position = 15
Outstanding orders that have yet to be delivered
Inventory Control
- when should be ordered
- what quantity
3 Inventory Control policies
- (R,S): Base-Stock Policy
- (s,Q): Reorder point - order quantity policy
- (s,S): Reorder point - order-up-to-policy
(R,S): Base-stock policy
Inventory Controly Policy
- When: all R periods [e.g. every Monday]
- Quantity: Order-up-to level S minus inventory position
Inventory position = net inventory + Outstanding orders
(s,Q): Reorder point - order quantity policy
Inventory Control Policy
- When: Inventory position reaching / falling below reorder point s
- Quantity : Lot size Q
(s,S): Reorder point – order-up-to policy
Inventory Control Policy
- When: Inventory position reaching / falling below reorder point s
- Quantity : Order-up-to level S minus inventory position
L = Lead time
Alpha
Non-stockout probability
- Number of periods without shortages/Number of total
periods
6/7 months without shortage = 85.7%
Beta
Fill-rate:
- Fraction of demand immediately satisfied from stock (β)
only 10 units in backlog
230 / 240 = 95,8%
**How to Set Inventory Control Parameters **
(R,S)
- R = classic order interval EOI
- R fix (periodic order R=1)
* Base-stock level S = expected demand during replenishment lead time (including review
period) plus safety stock
(s,Q)
- Q = EOQ
- Reorder point s = expected demand during replenishment lead time (including review period) plus safety stock
(s,S)
- S-s = EOQ
- Reorder point s = expected demand during replenishment lead time (including review period) plus safety stock
Lot size = Quantity, which
EOQ
- is produced without interruption in exactly one production order
- is procured in one common replenishment order
- is transported together
EOQ
2 Types of the material supply process
- Synchronous with demand (Just-in-Time)
- Procurement to stock (Order / production in lots)
EOQ
Model Assumptions
- Continuous time, infinite planning horizon
- Constant demand rate d (units per time unit)
- Procurement of material in lots of size Q (units)
- No lead time, i.e. immediately affecting inventory
- Fixed ordering costs per order A
- Constant procurement costs c per unit (purchase price, production costs per unit)
- No shortage permitted (non-negative net inventory)
Storage
* Unlimited storage capacity
* Inventory holding costs h for inventory (per unit and time unit)
Inventory Development under EOQ
pattern of graph
Saw-Tooth Pattern
EOQ Paramters
A
c
A = Fixed ordering Costs
c = procurement costs per unit order
EOQ
Formula
C(Q) = d/Q x A + (h/2)*Q + c x d
A = Fixed ordering costs
c = procurement costs per unit
EOQ
Formula
Optimal Order interval T(*)
Calculate Example
* Weekly demand: 100 units
* Fixed ordering costs: 250 €/order
* Procurement costs: 3 €/unit
* Inventory holding costs: 0.2 €/unit and week
T(*) = √(2xA) / (hd)
d = Demand
A = Fixed order costs per order
h = invetory holding costs per unit
T = Q(opt) / d = 500 / 100 = 5
EOQ
Formula
Minimal Costs per Time unit C(*)
Calculate Example
* Weekly demand: 100 units
* Fixed ordering costs: 250 €/order
* Procurement costs: 3 €/unit
* Inventory holding costs: 0.2 €/unit and week
C(*) = √(2dhA) +c x d
A = Fixed order costs
c = procurement costs per unit
C = √(2 x 100 x 250 x 0,2) + 3 x 100 = 400
